European monetary union: an application of the fundamental principles of monetary theory
Georges Caravelis's argument is about a monetary-theoretic approach to the origin, transformation and evolution of monetary institutions. It consists of five hypotheses, the realism and logic of which are geared to economic history. It is applied to Economic and Monetary Union and is intended to provide answers to five questions relating to why EMU was agreed on, when it would be realized, how its monetary unit would be established, which means should be used to implement it and what purpose it would serve. These five hypotheses are meant to frame formerly unresolved problems in the theory of money as well as to act as tools for the appraisal of the Utility theory of money through a reconsideration of Walras's Elements, and of the State theory of money via a restatement of Keynes's General Theory. Both are found to be inadequate; the first, because of the logical inconsistency entailed in its theoretical construction; the second, because of its limited explanatory power and suggestive capacity. An alternative approach to money is offered, aiming at suggesting new answers to the basic questions about money. It starts from the premise that the asset which internalizes a sufficient number of money externalities is capable of becoming money. For this to happen, certain conditions embodied in the hypotheses ought to be satisfied. If the postulate: money is an externality is applied to EMU, it is found that EMU's institutional arrangement is defective.
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State theory of money and the
Treaty on economic and monetary union
A monetarytheoretic approach to
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anchor argued assets assumed assumption basket Bundesbank capital capital accumulation chapter Cipolla Commission commodity money Community competition confidence externalities convergence convergence criteria countries criteria debt deficits demand determined economic effects efficiency equation equilibrium ESCB established European expectations fiscal policy fixed exchange rates function fund global globalisation growth Hence income increase independence inflation rate instability instruments interdependence interest rate internalised investment Keynes Keynes's liquidity Member monetary disturbance monetary institutions monetary policy monetary system monetary theory monetary unit money externalities money process money supply national central banks numeraire official ECU parallel currency payments Portugal price level externalities price stability private ECU production rate of interest reserves role savings sector seigniorage seigniorage externalities single currency stage of EMU store of value structure systemic risk tatonnement theoretical theory of money third stage trade transaction costs Walras Walras's paper money